1098277--2/28/2007--WEBSENSE

related topics

{product, market, service}

{regulation, change, law}

{personnel, key, retain}

{stock, price, operating}

{property, intellectual, protect}

{acquisition, growth, future}

{customer, product, revenue}

{stock, price, share}

{provision, law, control}

{operation, international, foreign}

{system, service, information}

{product, liability, claim}

{cost, operation, labor}

We have experienced declining growth rates, particularly for Web filtering sales to large enterprises in North America and Western Europe, and therefore need to increase our sales to small and medium sized business customers. We are moving towards a two-tier distribution channel in North America which is intended to increase the quantity of our indirect sales. Our future success depends on our ability to sell new, renewal and upgraded Web filtering and Web security subscriptions. Failure of our security products, including our information leak prevention products, to achieve more widespread market acceptance will seriously harm our business. We face increasing competition from much larger software and hardware companies, which places pressure on our pricing and which could prevent us from increasing revenue or maintaining profitability. In addition, as we increase our emphasis on our security-oriented products, we face competition from better-established security companies that have significantly greater resources. Our international operations involve risks that could increase our expenses, adversely affect our operating results, and require increased time and attention of our management. Sales to customers outside the United States have accounted for a significant portion of our revenue, which exposes us to risks inherent in international sales. Acquired companies or technologies can be difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results. We may not be able to develop acceptable new products or enhancements to our existing products at a rate required by our rapidly changing market. Our products may fail to keep pace with the rapid growth and technological change of the Internet in accordance with our customers expectations. Failure of our products to work properly or misuse of our products could impact sales, increase costs, and create risks of potential negative publicity and legal liability. We face risks related to customer outsourcing to system integrators. Other vendors may include products similar to ours in their hardware or software and render our products obsolete. Our worldwide income tax provisions and other tax accruals may be insufficient if any taxing authorities assume taxing positions that are contrary to our positions. Any failure to protect our proprietary technology would negatively impact our business. Third parties claiming that we infringe their proprietary rights could cause us to incur significant legal expenses and prevent us from selling our products. Because we recognize revenue from subscriptions for our products ratably over the term of the subscription, downturns in sales may not be immediately reflected in our revenue. Our quarterly operating results may fluctuate significantly, and these fluctuations may cause our stock price to fall. The market price of our common stock is likely to be highly volatile and subject to wide fluctuations. We are dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan in a timely manner. Because competition for our target employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our planned growth. Compliance with changing regulation of corporate governance, accounting principles and public disclosure may result in additional expenses. It may be difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We do not intend to pay dividends.

Full 10-K form ▸

1098277--2/28/2007--WEBSENSE_INC